Poor Profit Outlook Prompts Shakeup at Lockheed

Lockheed Martin Corp.'s financial woes continued as the company reported lower earnings and the departure of two high-ranking executives.

Among the problems cited by the Bethesda, Md.-based company in the latest earnings disappointment were program delays in its system integration unit, softness in the commercial space business, failure to win contracts in areas such as future imagery architecture, and satellite and launch delays.

Lockheed Martin spokesman James Fetig said the system integration delay was related to a postal service contract but would not say what country the contract was with or the value of the contract.

In its Oct. 29 earnings report, Lockheed Martin said that its earnings per share for the third quarter of 1999 was 57 cents compared to 83 cents in the same quarter of 1998. Net earnings for the 1999 third quarter were $217 million compared to $318 million in 1998.

The company also slashed its earnings estimate for 2000 to $1 per share from $2.15 per share. The profit outlook sent Lockheed Martin's down to $20, a drop of nearly $3, Oct. 29. Lockheed Martin's stock was trading at about $40 a share at the beginning of 1999.

Meanwhile, Lockheed Martin announced the retirements of Peter Teets, president and chief operating officer of the company, and James Blackwell, corporate executive vice president of the aeronautical systems division.

"The difficult times we have seen are not indicative of the company's real potential, and I feel I must step up to being accountable for our disappointing financial outlook for 2000," Teets said in the Oct. 29 Lockheed Martin statement.

Vance Coffman, chairman and chief executive, remains the sole executive to hang onto his job as Lockheed Martin looks for a way to break out of its doldrums.

Analysts greeted the earnings news and personnel shifts as "more moving around of the deck chairs on the Titanic," said Paul Nisbet, an analyst with JSA Research in Newport, R.I.

"Obviously, in all the acquiring they have done, they have lost control of the things they have going on," said Anthony Ginsberg, an analyst with the market research firm Fourteen Research of New York.

The pressure for performance now is even more squarely on Coffman's shoulders, analysts said. "He is the only surviving member of the upper echelon," said Nisbet.

The company said it will look outside Lockheed Martin for a replacement for Teets. Coffman and Eugene Murphy, a member of the board of directors of Lockheed Martin Corp. and an executive at General Electric Corp., will chair the search committee.

The latest shifts by Lockheed Martin come just a month after the company restructured its lines of business and replaced Philip Duke, its chief financial officer who was shifted to a new position as executive vice president of shared services function.

Lockheed Martin's problems are "endemic of the defense industry," said Chuck Hill, director of research for First Call of Boston, which collects and distributes market research and analyst information on companies. Other defense companies such as Raytheon Corp. of Lexington, Mass., have had similar problems with lower than expected earnings. "But Lockheed Martin's hit has been bigger than most," Hill said.

Budget cuts and problems with integrating acquisitions have been the biggest problems for large defense contractors, he said.

Of the 14 analysts that follow Lockheed Martin, only two still recommend the stock as a strong buy. Three recommend a buy, eight a hold and one a sell, Hill said.